Launch of the 2016 Economic Survey of the United States

Remarks by Angel Gurría

Secretary-General, OECD

6 June 2016

Washington DC, United States

Dear Distinguished Guests, Ladies and Gentlemen,

It is a pleasure to be here to present the OECD’s 2016 US Economic Survey. I would like to thank the US Administration ─ in particular Secretary Lew and his Treasury team ─ for their support and input on the Survey, and to Adam Posen and his staff for generously hosting us at the Peterson Institute.

I am delighted that the Chairman of the Council of Economic Advisers, Jason Furman, is participating in today’s launch, along with the US Ambassador to the OECD, Mr. Daniel Yohannes.

The US recovery is underway

Let me start with the good news. The OECD’s latest analysis confirms that the US economy has made a comeback! Output has surpassed its pre-crisis peak by 10%, private sector employment gains have reduced unemployment to 5%, fiscal sustainability has been largely restored, and corporate profits are high. Business fixed investment has expanded steadily. The housing market is recovering, and household balance sheets are in a stronger position overall. Economic growth is projected to remain at around 2% in 2016 and 2017.

The recovery may be modest by historical standards, but it has been one of the strongest in the OECD, supported by robust monetary policy and the well-timed expansion of fiscal policy. Some regions and sectors have led the way: California, and the Northeast corridor, for example, and the software, telecommunications, and pharmaceutical sectors.

These are all welcome developments, but it’s no plain sailing. Significant challenges continue to rock the boat. Considerable risks remain on the horizon. The impetus from mutually reinforcing gains in employment, income and household spending, along with falling energy prices, is unlikely to be sustained without a pickup in real wage growth. Booming conditions in the domestic energy sector that prevailed through late 2014 and supported business fixed investment have dried up. With monetary policy levers persistently set at highly accommodative settings, the scope for policy to respond to adverse shocks is limited.

Let me share with you some of the Survey’s key assessments and recommendations to strengthen the recovery, improve productivity growth and promote inclusiveness.

Rebalancing the policy mix

Firstly, the US needs to rebalance the policy mix towards fiscal and structural policies. Following a period of unprecedented expansion, the Fed is taking steps to normalise interest rates. Fiscal policy should focus on well targeted public investments in infrastructure, skills, innovation, health and environmental protection that deliver many wins: they boost demand, improve productivity, and enhance inclusiveness and sustainability. Structural policies should be calibrated to raise productivity growth and increase the labour force. Together, these policies would create space for monetary policy to react to adverse shocks.

Better prudential regulation is also essential for preserving financial stability. US banks remain less well capitalised than in many OECD countries and financial activity is still very concentrated, propagating the too-big-to-fail problem. Efforts to raise further capital requirements for large financial institutions, reduce fragmentation among regulators, and introduce macro-prudential tools is justified. In this respect, full implementation of Basel III and the Dodd-Frank Act is critical.

Unleashing productivity

Equally important is strengthening productivity growth, which has been slowing since the mid 2000s, but has been unusually sluggish in recent years. This is a problem shared with most other OECD countries. Average business productivity growth decelerated about three quarters of a percentage point from 2009 to 2014. This stems partly from weaker investment, but there are other factors. New firms aren’t being created as frequently as before, and incumbents have acquired more market power.

The survey proposes three key measures to unleash productivity in the US:

First, investments in infrastructure are essential to address bottlenecks and promote mass transit. This requires well-coordinated metropolitan governance arrangements to harness the gains from agglomeration.

Second, specific measures to foster business dynamism and encourage entrepreneurship are necessary. These may include refundable tax credits for new firms, reform of personal bankruptcy procedures, and the acceleration of patenting decisions to support knowledge diffusion.

Third, to tackle rising market power among incumbent firms, antitrust policy should be adapted to keep pace with digitalisation, financial innovation and globalisation.

The Survey also maps the interrelation between inclusive societies and productive economies. By investing in skills, by removing obstacles to employment, US policymakers can help Americans fulfil their productive potential.

Promoting inclusiveness and sustainability

This is key, because the gains from the economic revival are not being evenly shared. Many face obstacles in the labour market. Prime-age female labour force participation is falling and is now below Germany and Japan. And women who work still earn less than men! Wage gaps and participation rates vary across population groups, with Black and African American and Hispanic and Latino workers faring less well.

Investments in skills, paid parental leave and affordable childcare are important for levelling the playing-field, while expanding the earned income tax credit and raising the minimum wage can help tackle social and racial inequalities. Reducing pre-screening for people with criminal records would give people a fairer chance to re-enter the workforce.

The sustainability of growth also matters. The OECD supports introducing market-based measures to address environmental challenges. The budget proposal for 2017, which includes a new tax levied on a barrel of oil, is a positive step. Programmes to improve well being in metropolitan areas and decreasing congestion could also reduce environmental harm.

These are just a few elements in our Survey. You will also find other key analysis from improving access to higher education and training, to water governance.

Ladies and Gentlemen:

Two years ago for the launch of the previous Economic Survey I said that the US was doing well. Today, I can report that it’s doing even better, despite these important challenges. This is the last Survey we will present under President Obama’s administration. I would like to take this opportunity to express my thanks and my appreciation for the excellent working relationship with the OECD during his Presidency. If I can stand here and say the US is doing well, that’s in part thanks to him, it remains one of his most important legacies.

The OECD will work hard to strengthen the US economy further and deliver better policies for better lives for all Americans.